27. When a bank loan is repaid the supply ofmoney: A) is constant, but its compo

Question

27. When a bank loan is repaid the supply ofmoney: A) is constant, but its composition will have changed. B) is decreased C) is increased. D) may either increase or decrease. Use the following to answer questions 28-30 Answer the next question(s) on the basis of the following consolidated balance sheet for the mmerci billions. ial banking system. Assume the required reserve ratio is 10 percent. Ail figures areir. Liabilities and net worth Checkable Deposits Capital Stock S300 130 Reserves Securities Loans Property S 30 70 130 200 28. Refer to the above data. The commercial banking system has excess reserves of. A) S0 billion. B) S30 billion C) S60 billion D) S70 billion 29. Refer to the above data. After a deposit of S10 billion of new currency into a checking account in the banking system, excess reserves will increase by: A) SO billion B) S7 billion. C) S9 billion D) S10 billion 30. Refer to the above data. After the deposit, the maxinum amount by which this commercial banking system can expand the supply of money by lending is: A) S9 billion B) $45 billion. C) S36 billion D) S90 billion.

Explanation / Answer

27) The answer is C-) Is increased.

because when loan is repaid, the bank recieves deposits and thus increase its excess reserves then it can lend out more and thus in this way money supply will increases.

28) THe asnwer is D -) $70 billion .

because, total excess reserves = $270 billion .

but its loand and securities is = $200 billion.

therefore, remaining excess resrves = $70 billion.

29) THe asnwer is C -) $9 billion.

becasue required reserves = $1 billion

excess reseves = 10- 1 = $9 billion.

30) The asnwer is D = $90 billion.

becaus excess resrve = 9 * 10 =$ 90 billion

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